Tax Collected at Source (“TCS”) on LRS and Overseas

Tax Collected at Source (“TCS”) on LRS and Overseas

The Finance Act 2020 has inserted new sub-section (1G) in Section 206C of the Income-tax Act, 1961 (“Act”) which is effective from 1st October, 2020. It has introduced the provision of TCS on the remittances made under Liberalized Remittance Scheme (“LRS”) of Reserve Bank of India (“RBI”) and remittance made towards Overseas Tour Program Package.In order to bring clarity regarding the amendments brought by the above section, we have attempted to address certain common queries by way of Frequently Asked Questions set out as under

What is the provision under the new sub-section (1G) of Section 206C of the Act? Every person, being seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding ten lakh rupees, shall collect tax from buyer at the rate of 1% of sale consideration. Tax shall be collected at the time of receipt of amount from the buyer.

When does the liability of collecting TCS arises for remittances made under LRS? When does the liability of collecting TCS arises for remittances made under LRS? With effect from 01.10. 2020, any amount or aggregate of the amounts being remitted outside India by a person resident in India under the LRS Scheme of RBI in excess of Rs. 7 Lakh in a financial year will attract TCS @5%

Who shall be treated as Buyer for the purpose of TCS under LRS?  has inserted a new sub-section (1G) in TCS (Tax Collected at Source) under Section 206C of the Income Tax Act, 1961 to collect tax out of foreign remittance transactions under Liberalized Remittance Scheme [LRS] as well as amount received from buyer by a seller for sale of an ‘Overseas Tour Program Package’. The section has been made effective from October 1, 2020.

To dispel doubts regarding the newly introduced provisions and bring more clarity in interpretation of the same, please find below detailed 

What is LRS Scheme of RBI? Under LRS Scheme, an Individual person who is resident in India as per FEMA is permitted to remit outside India fund up to US$ 2,50,000 per financial year (April to March) without any approval of RBI for any permitted current account or capital account transactions or both such as opening foreign currency account abroad, purchase of property or making investments abroad, private visit, gift/donation, business trip, medical treatment, studies abroad, going abroad on employment, etc.

How to compute the threshold of Rs. 7 Lakh for TCS on LRS? The threshold of Rs. 7 Lakh is for the whole financial year for each buyer. However, for the FY 2020-21, this provision is effective from 01.10.2020. Therefore, any remittance made till 30.09.2020 will not attract any TCS. However, for computing the limit of Rs. 7 Lakh, remittances made from 01.04.2020 will be considered. Hence, if any person has already remitted Rs. 7 Lakh by 30.09.2020, then TCS will be applicable on every remittance made on or after 01.10.2020. In case remittances made up to 30.09.2020 is less than Rs. 7 Lakh, then TCS on remittance(s) on or after 01.10.2020 will be applicable on amount exceeding Rs. 7 LakhWhere remittance is being made under LRS for the purpose of education and source of funds for such remittance is out of any loan taken from any financial institution as defined u/s 80E of the Act, then TCS shall be collected at reduced rate of 0.5%on the amount in excess of Rs. 7 Lakh in any financial year.7.Is there any relaxation on remittances made for pursuing any education abroad?The above relaxation is applicable only in case of loan taken from financial institution as defined u/s 80E and not from the loan taken from non-approved financier or remittances from own source of funds

What would be rate of TCS in case of non-submission of PAN/Aadhar? In case of non-submission of PAN/Aadhar, TCS rate would be 10% instead of 5% under LRS and overseas tour program package. However, in case of remittances made under LRS for the purpose of education abroad, TCS would be collected at 5% in case of non-submission of PAN/Aadhar. However, it is to be noted that it is mandatory for an Individual under FEMA regulations to provide PAN for making any remittances under LRS scheme.

RATES of TCS in different Cases

  1. Higher Rate of TCS if PAN is not furnished by Collectee [Section 206CC]

  2. Time of Payment of TCS to Government Account

  3. Statement of Tax (TCS) Collected and Deposited [Proviso to Section 206C(3) and Rule 31AA(1)]:

  4. Issue of TCS Certificate [Section 206C(5) & Rule 37D]:

  5. Failure to collect tax (TCS) required under section 206C(1) [Section 206C(6)]:

  6. Penalty in default of TCS under Section 221 [Section 206C(6A)]

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